Easy way to make money

[a_unique_person]

Heard about this on a radio current affairs program yesterday.

Borrow money in from a bank in Japan, invest it in a bank in Australia.

Done. What could be simpler. Should I give it a go?

[quixotecoyote]

You must do your homework first.

Have you thought of what questions you need to ask?

[Francesca R]

Heard about this on a radio current affairs program yesterday.

Borrow money in from a bank in Japan, invest it in a bank in Australia.

Done. What could be simpler. Should I give it a go?Thats the "FX carry trade" (http://en.wikipedia.org/wiki/Carry_trade#Currency). You take exchange rate risk. In particular, the risk that the yen rises in value aganst the Australian dollar. Since the yen is currently near a 16 year low versus the Aussie dollar that risk is considerable. Many people (apparently) are riding this strategy. It got extremely bumpy a couple of months ago.

[a_unique_person]

From that link



For example, a trader borrows 1,000 yen (http://en.wikipedia.org/wiki/Yen) from a Japanese bank, converts the funds into U.S. dollars (http://en.wikipedia.org/wiki/U.S._dollars) and buys a bond (http://en.wikipedia.org/wiki/Bond_%28finance%29) for the equivalent amount. Assuming the bond pays 4.5% and the Japanese interest rate (http://en.wikipedia.org/wiki/Interest_rate) is set at 0%,[4] (http://en.wikipedia.org/wiki/Carry_trade#_note-3) the trader stands to make a profit of 4.5% (i.e. 4.5% - 0%), as long as the exchange rate between the countries does not change. Leverage (http://en.wikipedia.org/wiki/Leverage_%28finance%29) can make this type of trade (http://en.wikipedia.org/wiki/Trade) very profitable. If the trader above uses a leverage factor of 10:1, then he/she can stand to make a profit of 45% (i.e. 4.5% * 10). However, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Furthermore, because of the leverage, small movements in exchange rates can magnify these losses immensely unless hedged (http://en.wikipedia.org/wiki/Hedging) appropriately.
As of early 2007 (http://en.wikipedia.org/wiki/2007), it is estimated that as much as US$1 trillion (http://en.wikipedia.org/wiki/1000000000000_%28number%29) may be staked on the yen carry trade.[5] (http://en.wikipedia.org/wiki/Carry_trade#_note-4)




I'm guessing that's a topical example, since the US$ appears to be in free fall.

[shuize]

I'm guessing that's a topical example, since the US$ appears to be in free fall.


Sadly, as someone who eagerly roots against the U.S. dollar on the yen exchange, the dollar seems to be in free fall against every other currency in the world except the yen right now.

The carry trade always seemed way too risky to me. But I was pretty impressed with myself for thinking of the idea years ago -- until I learned that it was already a multi-billion, or if the quote above is correct, trillion dollar industry.

Oh, and best of luck getting an unsecured loan as a foreigner residing overseas.

[Francesca R]

Oh, and best of luck getting an unsecured loan as a foreigner residing overseas.You don't actually need to borrow yen from a bank in Japan. Selling yen forward for Aussie dollars gives you an identical payoff and you can do that through a local bank, or even more easily via a spread-betting shop.

[Psiload]

Heard about this on a radio current affairs program yesterday.

Borrow money in from a bank in Japan, invest it in a bank in Australia.

Done. What could be simpler. Should I give it a go?

You'd be better off playing blackjack in Vegas. At least you'd get free drinks while you're pissing your money away.

[MWare]

I'm a technical guy and not a financial one, but working here in NY, most of my employment has been in the financial industry. The professional fx traders that I've dealt with in general have the most stressful existence of all the investors since the nature of the job seems to often require many open positions in a variety of time zones. These guys will often sleep for only a couple hours at a time over a period of months so they can always keep a close eye on their positions.

Whereas the NASDAQ and NYSE guys are having cocktails at 4:01pm on Friday afternoon, these guys will just as likely be sitting in front of their terminals at 2:00am on a Sunday morning. They always seem stressed (moreso than the average investor). I realize you guys are talking in regards to casual investment, but after seeing some of these guys, I've vowed never to play that particular brand of roullette.

[shuize]

You don't actually need to borrow yen from a bank in Japan. Selling yen forward for Aussie dollars gives you an identical payoff and you can do that through a local bank, or even more easily via a spread-betting shop.


Right. I guess I was still thinking of my hair-brained plan. It doesn't surprise me that this has been more streamlined than a casino. Though I think that's a pretty good analogy.

[Starthinker]

Assuming the bond pays 4.5% and the Japanese interest rate is set at 0%,[4] the trader stands to make a profit of 4.5% (i.e. 4.5% - 0%), as long as the exchange rate between the countries does not change.

Can I really borrow money at 0% in Japan? Next time I need a mortgage or new car I'm going to a Japanese bank.

[Jaggy Bunnet]

Can I really borrow money at 0% in Japan? Next time I need a mortgage or new car I'm going to a Japanese bank.

Why?

It only had a zero interest rate (I think it has now been raised to 0.25%) because the economy was deflating.

So you could take the 100 yen you have now and buy a car, or you could put the yen in the bank for a year for zero interest, then buy a car for 98 yen and have 2 yen left.

This is essentially the same as having $100 which you could use to buy a car, putting the $100 in the bank for a year to get $6 of interest and then buying a car for $104 in an inflationary economy.

[Francesca R]

Can I really borrow money at 0% in Japan? Next time I need a mortgage or new car I'm going to a Japanese bank.Not 0%, but you can borrow at a very low rate. The Bank of Japn's official interest rate is 0.5%. Ten year government bonds have a yield of 1.75%. But you can't do it without taking exchange rate risk—it's yen you have to borrow, not your own domestic currency. If the yen goes up against your currency, then the principal loan you have to repay goes up with it

It only had a zero interest rate (I think it has now been raised to 0.25%) because the economy was deflating.

So you could take the 100 yen you have now and buy a car, or you could put the yen in the bank for a year for zero interest, then buy a car for 98 yen and have 2 yen left.

This is essentially the same as having $100 which you could use to buy a car, putting the $100 in the bank for a year to get $6 of interest and then buying a car for $104 in an inflationary economy.The inflation rate in Japan isn't relevant to a foreigner, except to the extent that it influences the exchange rate.

[Jaggy Bunnet]

The inflation rate in Japan isn't relevant to a foreigner, except to the extent that it influences the exchange rate.

Which it does.

[Francesca R]

If you mean purchasing power parity, that's a very long term anchor for currencies. The yen has been falling against many currencies for about 6 years even though PPP would argue that it should have appreciated.

[a_unique_person]

You don't actually need to borrow yen from a bank in Japan. Selling yen forward for Aussie dollars gives you an identical payoff and you can do that through a local bank, or even more easily via a spread-betting shop.

I'm sorry, that went right over my head.

[JEROME DA GNOME]

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[Gord_in_Toronto]

Place you monitor with this image


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Well I've heard of people doing this with lap dancers but isn't it a rather large tip for the girl at Kinko's? :confused:

[WildCat]

Well I've heard of people doing this with lap dancers but isn't it a rather large tip for the girl at Kinko's? :confused:
She puts the kink in kinkos Gord!

[Solus]

Give it to me first then I'll tell you how. ;)

Alternatively write a book and create some seminars about an easy method to make money. That works too. You just need to have that used car salesman personality.